AvalonBay Communities, Inc.

Good morning, ladies and gentlemen, and welcome to the Avalon Bay Community's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Following remarks by the company, we will conduct a question and answer session. You may enter the question and answer session queue at any time during this call by pressing star 1. If your question has been answered or you wish to remove yourself from the queue, press star 2. If you are using a speakerphone, please lift the handset before asking your question and we ask that you refrain from typing and have your cell phones turned off during the question and answer session. Your host for today's conference call is Mr. Jason Riley, Vice President of Investor Relations. Mr. Riley, you may begin your conference.

Thank you, Anna, and welcome to Avalon Bay Community's first quarter 2021 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release, as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussions. The attachment is also available on our website at www.avalonbay.com forward slash earnings, and we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I'll turn the call over to Tim Naughton, Chair and CEO of Avalon Bay Communities, for his remarks. Tim? Okay, great.

Thanks, Jason, and welcome to our Q1 call. With me today are Ben Shaw, Kevin O'Shea, Matt Bierenbaum, and Sean Breslin. Ben, Sean, and I will provide comments on the slides that we posted last night, and all of us will be available for Q&A afterward. For our prepared comments today, I'll start by providing an overview of Q1 results. Sean will elaborate on operating trends in the portfolio, where fundamentals have improved materially since the beginning of the year, and we'll also review our Q2 outlook. And then Ben will provide some thoughts as to why we believe we are positioned for outsized growth as the recovery and expansion take hold. Now let's turn to the results for the quarter, starting on slide four. In terms of operating results, it was another tough quarter. Core FFO growth was down by over 18% at Q1. Same-store revenue declined by 9.1% on a year-over-year basis. Given the timing of the pandemic, which began toward the end of Q1-20, this past quarter will be the toughest year of your comp will face this year. On a sequential basis, the decline in same-store revenue leveled off at 1.5% from Q4, which compares to a sequential decline of 1.6% in Q4-20. And Sean will touch more on the sequential trends in his comments. And then lastly, we completed almost $600 million of development in Q1 at a projected initial yield of 5.6%, well above prevailing cap rates we're seeing in the transaction markets, where cap rates are drifting down to or below 4%. Given the improvement that we've seen in fundamentals, we're ramping up the development pipeline and expect to start $650 million this quarter, Q2. with much of that to be match-funded with expected dispositions of approximately $500 million in the second quarter. Turning now to slide five, as we did last quarter, we thought we'd provide a little more detail on the components of the decline in same-store revenue that we've experienced on a year-over-year and a sequential basis. Starting on slide five, on a year-over-year basis, This past quarter, about two-thirds of the decline in same-store revenue was a result of lower effective rents, driven by a combination of lower lease rents and higher concessions than we saw in Q1 of last year. The rest of the decline was mostly a function of elevated bad debt, as uncollectible revenue was just over 3%, or roughly 230 basis points higher than last year. The impact of bad debt on a year-over-year same-store revenue basis will be much less over the balance of the year as bad debt initially spiked in Q2 of last year at the onset of the pandemic. Turning to slide six, sequential same-store revenue was down 1.5% in Q1 from Q4. As you can see, it was driven mostly, again, by lower effective rents, but partially offset by 120 BIPs improvement in occupancy. Turning to slide seven, we saw meaningful improvement in like-term rent change during the quarter. And continuing into April, with average like-term effective rent improved by 270 basis points versus the Q4 average, and improved another 310 basis points above that in April, versus what we saw in Q1. As you can see in this chart, the pace of improvement has been steady and quite healthy since the beginning of the year. And again, Sean will provide more color on what's driving these trends in his remarks in just a moment. But let me just share one more slide on development performance first before we turn it over to Sean. I'll turn to slide eight. Slide eight shows that despite the many challenges faced by our business over the last year, The lease-up portfolio is actually performing quite well, with average rents, costs, and yields roughly in line with pro forma, and it's delivering meaningful value with yields well above prevailing cap rates. As a result of this performance and improved operating fundamentals, we are reactivating the pipeline and expect to start six communities totaling about $650 million in Q2. So with that, I'll turn it over to Sean to discuss portfolio trends in more detail. Sean?